Pushpay has become the subject of a $1.5 billion takeover bid. Photo / NZ Herald
Pushpay’s $1.53 billion takeover deal could be one of the longest in the making - if it actually gets over the line.
Initial expressions of interest were signalled by the company back in April, but it has taken until November to get a firm offer on the table. That offer, at $1.34 a share, is from investors Sixth Street and BGH Capital through a scheme of arrangement.
And it won’t be until the first quarter of next year that shareholders get their hands on the independent valuation and have a chance to vote on whether to accept the offer.
Chapman Tripp partner Roger Wallis, who isn’t involved in the deal, said there wasn’t a typical timeframe for how long a scheme of arrangement process could take.
But one of the probable reasons that it was being given plenty of time was the need for Overseas Investment Office approval and anti-trust approval.
He said shareholders also tended to get annoyed if they were asked to attend a meeting right on Christmas Eve.
Some have suggested the drawn-out timeframe could give other suitors a chance to come out of the woodwork with a higher offer.
But Wallis said that was unlikely given the amount of time already spent by the board talking to potential suitors.
The offer has also met with some disapproval, with fund managers deriding it as too low.
Sam Trethewey, a fund manager at Milford Asset Management, said it believed the offer was “fairly below market expectations”, pointing to Pushpay’s trading price in April when the initial expression was announced.
“Back in April, when interest was announced by the board, the share price was trading at $1.30 - and that included a discount that there may not even be a deal - and $1.45 in May, when the arrangement was announced between BGA and Sixth Street. So, basically indicating they had a block and were looking at the stock very closely. And again, that reflected a discount they may walk away.
“That to me is a clear indication the market saw value at least at those levels if not higher.”
Since then, valuations of technology stocks across the market have fallen. Pushpay also warned this week that its operating earnings for the current year to March 2023 would be down on previous forecasts.
Trethewey said he also had concerns about the use of a scheme of arrangement for the deal as it made it very difficult for shareholders to argue for what was a fair price because the board was making that decision on their behalf without talking to them.
“And that in itself creates a real mismatch potentially between people that are interested in short-term profits, versus where do they see the long-term value in the business.”
It’s not the first time schemes of arrangement have proven controversial.
Trethewey pointed to the sale of Metlifecare two years ago as another example.
“It was also a company facing some shorter-term weaker trading performance which saw the board get bear-hugged into accepting a deal.”
Trethewey said formal takeover structures gave all shareholders a fairer say, and the threshold for acceptance was much higher at 90 per cent versus 75 per cent for the scheme of arrangement.
He would like to see those structures used more widely to enable a wider debate about the value of the offer.
Schemes typically mean deals are easier to get done. Some commentators have pointed to the fact that schemes are encouraged by those who organise the deals because it means they potentially get paid faster.
But Wallis said they had a lot of advantages as well. Under a takeover offer, the offer was only allowed to be open for up to 90 days, and that meant the independent assessor was under pressure to turn around the assessment. For some companies, getting 90 per cent acceptance was also difficult, especially if their share register included a lot of non-voting index-driven investors.
The deal could be stopped if more than 25 per cent of shareholders turn down the offer.
Investors will be hoping the independent valuation comes out higher than the $1.34 offer price.
“That could see a renegotiation of price, potentially,” Trethewey said.
Global shipping giant Maersk warned this week of dark clouds on the horizon, with chief executive Soren Skou saying it was clear that ocean freight rates had peaked and were expected to normalise again this year amid falling demand and an easing of supply chain congestion.
Freight prices soared during the pandemic, benefiting the likes of New Zealand’s Mainfreight, but Maersk’s warning could also be a sign of worse things to come for the local operator.
At its investor day last month, Mainfreight estimated profit before tax had improved nearly 66 per cent to $301.7 million after 26 weeks of trading. Estimated revenue after 26 weeks trading had improved 32.5 per cent to $3.01b. The company is due to report its half-year result on November 10.
Adrian Allbon, director for equity research at Jarden, said Mainfreight was performing very well, but it was hard to ignore the signs of the global economic slowdown.
“You read stuff like, out of Maersk, which points to quite a sharp slowing of demand in that shipping channel and possibly adds a red cross for air cargo as well. You watch macro indicators like global freight rates, and they are reverting back to pre-Covid levels pretty fast.”
In terms of what that could mean for Mainfreight, Allbon said it was quite convoluted.
“In their home markets - Australia and New Zealand - they have home leadership positions, so the broader temperature of the economy does make more of a difference there, but they have been expanding quite heavily into warehousing. In the big markets, Europe and the US, while the economic variation makes a difference to the bigger players in those markets, Mainfreight is a very small player in those markets.
“Most people’s expectations, certainly our one, is that air and ocean earnings all start to normalise quite quickly, but equally, their domestic operations - which is really the part of the business people are prepared to pay the higher multiple on - still seem in reasonable shape, and the cash earnings they made out of the Covid situation have been redeployed into warehousing. Some of the utilisation of that stuff is an offset from the normal pressures a business like that would face if they hadn’t been investing. The answer is, we don’t know.”
Allbon said betting against Mainfreight was also difficult because of its strong track record.
“They operate to their own rhythm - versus a stock which intrinsically should have some correlation to what is going on in the world, given it’s a global player. The other thing with Mainfreight is, they have an orientation towards goods, and some of the spend is shifting towards services.”
Clearly, investors will be looking for a steer on where things are headed at the result.
Some shareholders have been champing at the bit to get back to in-person annual general meetings, but others seem far less interested.
SkyCity came under fire last week for having an online-only AGM, but Stock Takes understands Chorus only had about a handful of people turn up to its meeting in Wellington last week.
While the meeting was held at Chorus’ offices, limiting the venue hire costs, it would still have cost a bit to fly directors in for the meeting and put on the usual cuppa and morning tea.
On a per head basis, that would have made it an expensive affair, and will surely have its board looking at whether future meetings are in person or online only.
Conversely, Precinct Properties AGM yesterday was said to have been packed to the rafters with a very engaged shareholder base.
There are some hopeful signs that sharemarkets could be on the road to recovery. Australia’s S&P/ASX 200 index and New Zealand’s S&P/NZX 50 Portfolio index rose in October, rebounding from September’s steep losses, S&P said.
Australia’s S&P/ASX 200 gained 6 per cent in October, bouncing back after steep losses in the previous month.
Large Australian stocks lagged their mid- and small-cap brethren as the S&P/ASX 50 added 5.7 per cent compared with 7.1 per cent for the S&P/ASX MidCap 50, and 6.5 per cent for the S&P/ASX Small Ordinaries.
New Zealand’s S&P/NZX 50 Portfolio index was up 1.9 per cent in October. Microcap stocks lagged, with the S&P/NZX Emerging Opportunities Index shedding 1.7 per cent.
The S&P/ASX 200 Financials was the star performer among Australian sectors this month, jumping 12.2 per cent, while at the other end of the spectrum, Consumer Staples slipped 0.2 per cent.
“All of our Australian equity factor indices rose in October, with the S&P/ASX 200 Momentum and the S&P/ASX 200 Value in the lead, up 7.4 per cent each,” S&P said.
The S&P/ASX 200 Dividend Opportunities index, on the other hand, was a relative laggard, firming just 0.4 per cent during the month.
The majority of S&P’s regional fixed income indices finished the month higher.
Inflation-linked bonds provided the highest returns in both Australia and New Zealand, with the S&P/ASX Government Inflation-Linked Bond Index climbing 4 per cent and the S&P/NZX NZ Inflation-Indexed Government Bond Index gaining 2 per cent in October.
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